Is Ethanol a Cost Effective Solution to Climate Change?

Ethanol has been strongly supported as a solution to U.S. energy security, and recently, reducing carbon emissions. Historic Government subsidies and blending mandates made ethanol one of the most successful renewable energy sources in the U.S. Although the Government subsidies expired a year ago, increased ethanol is now being advocated possibly as a part of the EPA’s developing climate policy. Is increased corn ethanol a reasonably economical solution to reducing future U.S. carbon emissions?

Brief History of U.S. Ethanol Blending – Ethanol has been used as motor fuel-component since the dawn of the automobile. Until the 1990’s ethanol use was limited due to relatively poor economics compared to petroleum fuels. Besides having a lower vehicle fuel efficiency than petroleum (lower unit volume energy content), ethanol is corrosive and requires special handling. These factors further increase ethanol’s production-consumption costs. The Clean Air Act was amended to require reformulated gasoline ‘oxygenate’ blending during the early 1990’s. Although the oxygenate mandate was initially met by blending methyl tertiary butyl ether (MTBE), increasing ground water contamination issues totally replaced MTBE with ethanol by the early 2000’s.

The oxygenate blending requirement was effectively replaced by the first ‘renewable fuel standard’ (RFS1) created in 2005. The RFS1 mandated blending up to 7.5 billion gallon per year ethanol by 2012. The required blending level was further increased in 2007 when the new ‘RFS2’ was established.

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